Trade Liberalization and the Modern Metropolis

Abstract

What is the impact of international trade on cities and rural areas within a country? Existing studies on this topic are based on new economic geography models, which focus on the effect of international trade on the change in the balance between agglomeration and dispersion forces of the manufacturing firms. Recent studies, however, suggest that large cities today can be characterized as specializing in providing business services to host corporate headquarters, rather than as agglomeration of manufacturing. This paper tries to answer the same question by modelling a modern city that provides business services to host corporate headquarters, and argues that the city is likely to grow larger with trade liberalization.